What are the four basic steps in a short sale? In which direction must the market move for the short seller to profit?

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Percent Return = (FinalPrice – InitialPrice) / InitialPrice BankDiscountRate = rbd = ((Face – Price) / Face) * (360 / time) BondEquivilentYield = ((Face – Price) / Price) * (365 / time) EquivalentTaxableYield = rmuni = rcorp * (1 – TaxRate) Margin% = Equity / Value = (Assets – Liabilities) / Value NAV = (Value – Liabilities) / SharesOutstanding RoR = ( ChangeNAV + Distributions) / InitalNAV FundValue = InitialValue * (1 – FrontEndLoad) * T Stock Purchase: CurrentMargin = (MarketValue – AmountBorrowed) / MarketValue MarginCallPrice = Liabilities / ((1 – MaintenanceMargin) * Shares) MarginCallPrice = ((1 – IMR) / (1 – MMR)) * PurchasePrice Short Sale: CurrentMargin = (InitialCash – MarketValue) / MarketValue MarginCall = Assets / ((1 + MaintenanceMargin) * Shares) MarginCallPrice = ((1 + IMR) / (1 + MMR)) * PurchasePrice

You purchased 100 shares on margin at $102 per share.  Find the stock price at which you would get a margin call.  Rate Initial Margin 50% Maintenance Margin 30%

Use the data below to find a fund’s rate of return that would make it equal to a one-year CD with a yield of 2.88%. (hints: t = 1 and assume InitialValue = $1) Prospectus – High Flyer Fund (Annual Fees) Front-End Load 4.20% Expense Ratio 0.94%      

What are two advantages and two disadvantages of mutual funds?

What is a primary market?  What is a secondary market?

Define financial intermediation.

A fund holds bonds valued at $75,998,000 and has liabilities of $687,000.  There are 837,000 shares outstanding.  A large investor wants out of the fund and redeems 10,000 shares at the current NAV. a) What is the pre-redemption NAV? b) What is the post-redemption NAV?